Bitcoin Volatility 

 July 19, 2021

By  Brian Forester

The majority of crypto investors know that virtual currency is not that stable as some other currencies, like fiat currencies, for instance, the USD. Digital currency does not have any sort of base under itself, and it is not supported by gold or any other precious metal.

Nowadays, you can get bitcoin easily for USD, using online platforms or Bitcoin ATMs. And USD is not the only currency you can use: GBP, AUD, INR, and other options instead of USD. But USD is probably the most popular choice for those who trade from the United States. Actually, these currencies have their own volatility index as well. For USD, the volatility index is called DXY.

You probably have some assets for different purposes at your disposal on various trading services, be it speculative assets or any other kind of asset. It might be natural gas, gold, silver, not exactly USD. At this moment, let us agree on the fact that bitcoin is a rather volatile asset, and before you buy bitcoin, let us get you acquainted with the data on bitcoin volatility and how this volatility can be measured.

What Is Bitcoin’s Volatility Index About?

The key idea standing behind the concept of bitcoin volatility has its base in the price fluctuations of this digital currency. To be more concrete, Bitcoin Volatility Index refers to how much bitcoin value fluctuated on a certain day.

If the index is rather high, it means that investing might be risky because the forecasts about the future bitcoin prices are less reliable, and the predictions might be wrong.

Bitcoin Prices: Is Bitcoin Really That Volatile?

Everything is about the degree, but yes, bitcoin is a relatively volatile digital currency. Of course, there are some cryptocurrencies that are more volatile, and there are those that are less so, but bitcoin’s price indeed fluctuates.

Volatility itself is about the backward direction of measurement. In other words, it is about the previous price changes. This previous experience allows making predictions about the future and the future bitcoin value.

Knowing the term “volatility,” getting acquainted with the price analysis increases your financial literacy, making it possible to avoid crypto investments high at risk. Trading and exchange are serious issues, and if you decide not to check the analysis, you might lose all your previous gains.

Reason For Bitcoin Volatility

The volatility of the asset depends on the market cap it has. The bigger cap stands for, the smaller chances that this asset will be volatile. Otherwise, a small market cap usually proves that it is volatile.

How do we know the market cap of bitcoin? To find it out, we have to multiply the price of the bitcoin by its amount in circulation.

The current data is the following: the market cap of bitcoin is approximately 350 billion dollars (which is not that much as it might seem — the market cap of gold is 8 times larger, just for comparison). The amount of bitcoin in circulation has its limit. And the limit is almost reached (88% of 21 million).

Calculations of its market cap will be left for those who want to delve deeper into this topic. At this moment, the fact that the second component of this formula is limited leads us to the following conclusion: the market cap of Bitcoin will be changed by the changes in prices on this “commodity.”

What does it mean for the volatility? It means that to decrease the volatility of the currency, we will have to increase the cap somehow, and in our case, the only way to do this is to observe the price growing.

Bitcoin Volatility Index: Calculations Explained

To calculate the volatility index, we will have to stick to a certain point at the time. Basically, the volatility is calculated as the standard deviation of the price of the currency (for instance, the standard deviation of daily returns).

Delving deeper into the mathematical analysis: standard deviation can be found as the square root of the variance of the price. To find the variance, you have to take the price of the currency N times a day, for each point: (to subtract it from Bitcoin’s opening price)^2 (it will be convenient to create a table), sum all the results up, divide this number by N — now you have the variance.

Using a short period of time is convenient (daily returns) but is not obligatory (a month will work as well).

Since to calculate standard deviation, we used the price of the bitcoin; volatility should be measured in US dollar units. But, of course, using USD as the only measure is not mandatory. You can measure it in percent instead of the USD, but it will require some recalculations.

Reasons Of Price Changes For Bitcoin

Before you buy bitcoin or any other speculative assets on trading services, you definitely want to know the price.

For bitcoin, it follows the rule of demand and supply. , if the demand for a certain product grows up, the price on it will rise respectively, and vice versa. If people stop being interested in certain assets, even speculative assets and refuse to buy bitcoin, its price will fall.

Pricing of bitcoin varies from platform to platform, and it means that you will see different numbers on Bitstamp and Coinbase, and this is a usual situation for cryptocurrencies. But these differences are not that significant in the majority of cases, and yet, when the gap increases noticeably, Bitcoin arbitrage enters into force.

The Final Word

We suggest you be careful before spending money on such investments as cryptocurrencies and make sure you can trust certain exchange services. On the Internet, there is available data about every platform, and I recommend checking this data in advance.

Because of high volatility, this currency is a debatable option for governments to accept within businesses. The good news about having high volatility is that those who have enough experience can earn a lot trading Bitcoin during exchanges.

Before you buy bitcoin, we also advise checking its history of pricing. Bitcoin reached its peak on December 18, 2017, and it is called All-Time High.


How is bitcoin volatility calculated?

Bitcoin volatility (also referred to as standard deviation) is calculated as taking the square root of its variance. To get the variance, you have to take several points of time, select bitcoin’s prices at these moments, the amount of attempts is N. Then for each attempt, you do the following: (subtract it from bitcoin’s opening value)^2. Then you add all the numbers together and divide them by N. This is variance. Bitcoin volatility is measured in USD.

What will bitcoin be worth in 2030?

The value of bitcoin in the next years is the topic of discussion. Answering the question “how much money USD will people be giving for bitcoins in 2030?” many forecasters claim that its value will rise drastically, and it will be worth more than 100.000 dollars. This data does not contradict the current trend.

Is Bitcoin more volatile than stocks?

It is hard to answer this question unambiguously. Situations differ. But in some cases, bitcoin indeed displays less volatility than stocks, but it is hard to make forecasts about fiat currency. So, before you buy bitcoin, check the data about volatility before investing.

How often does the bitcoin price change?

Bitcoin prices are a valuable piece of data to obtain before the transaction but are indeed unstable. It changes every 30 seconds, fluctuating up and down, but usually not that significantly. Basically, its value depends on several factors, but generally, it obeys the law of demand and supply. The overall trend is, of course, a slow increase in its value.

What does bitcoin price depend on?

It depends on the rule of supply and demand. The more demand for bitcoin there is in the world, the more it costs, and vise versa: the fewer people are interested in bitcoin trade, the less it will actually cost during exchanges.

Bitcoin price: why so high?

The fact that bitcoin costs a lot is the sign that there is a high demand for it for transactions. People buy bitcoin or its parts (satoshi) as they see it as an efficient investment, but everyone has to remember that bitcoin is an asset for tax purposes. But still, according to the data of surveys, there is a general trend to pay more and more attention to cryptocurrencies, which can be bought for USD, despite their volatility.

Brian Forester

Brian is an experienced journalist and crypto enthusiast. Founder of CryptoCurry - famed for his insightful input on the future of cryptocurrencies and blockchain technologies.

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